Ehrhoff signed a 10-year, $40 million contract with the Sabres in 2011. He made $18 million over the first two years of the deal.
The Sabres used their second compliance buyout on Ehrhoff. Buffalo also bought out underperforming forward Ville Leino on June 17.
TSN was the first to report the move, which was announced by the team on Sunday.
By buying out Ehrhoff and Leino, the Sabres parted ways with Darcy Regier's last two major acquisitions as general manager. Regier was fired in November after 17 years with the Sabres.
Buffalo had high hopes for both players after making a splash under new owner Terry Pegula in 2011. Buffalo acquired Ehrhoff's rights from the New York Islanders shortly before the start of free agency and signed the defenseman to a front-loaded deal. The team also signed Leino to a six-year, $27 million contract.
Leino had just 46 points in 137 games with Buffalo. Ehrhoff quickly became one of Buffalo's top blueliners, recording 87 points in 192 games, but the Sabres struggled throughout the past three seasons. They had the worst record in the NHL last season.
Ehrhoff, 31, has 313 career points in 692 games. He had 33 points in 79 games last season.
Ehrhoff entered the NHL as a fourth-round pick of the San Jose Sharks in 2001. He has played for the Sharks, Sabres and Vancouver Canucks in his NHL career.